Somewhere over the rainbow, by Gus Cosio

I noticed from today’s trading activity in LC that signs that the stock is overbought is showing up. Why am I not surprised? First of all, many of those who buy LC are not long term investors. Many come in for a punt and quickly take profits. Nothing wrong with that. For those who share a longer time horizon with me, I would like to share this transcript from the quarterly report of Gold Fields which is actually available on line. The person being quoted is Gold Fields CEO Nick Holland:

“But this is what we’d understood was the mineralized core in this particular ore body. So we’ve got a drill platform here at 700 with a series of drill paddies that we’ve put in place. And we’re drilling out a series of fans across the ore body because the previous drilling that was done, that was about 118 diamond drill holes. Well, those drill holes were all done vertically. So what we’re now doing is we’re doing a series of drill holes, fanning across the ore body to test the continuity of the mineralized zones, and that’s the program we’re currently involved in right now.

“So if we look at what that means, here it is. You can see here is the drill level over there, and you’ve got a series of drill holes going out. And our initial drill program is to do 17 holes. And I’m giving you really just a quick taste, if you like, of what’s to come. The first 3 drill holes have been completed. You can see them over here where I’ve marked those drill holes. So if you just capture that in your mind for a moment, and you move on.

“Now let’s look at one of those drill holes, 5003. And in essence, what we’ve given you here is the full extent of the drill hole. That’s the core as we’ve previously understood it to be, okay. And if you look at the drill hole going across here, you can see that we’ve given you 2 intersections: One at a copper cutoff, copper equivalent cutoff of 0.5%. And you can see there’s 872 meters at 1.06 grams gold and 0.55% copper. And then if you want to use a 1.5% copper equivalent cutoff, you can see over here we have 552 meters at 1.49 grams gold and 0.73% copper.

“But in both cases, significant mineralized zones stretching over a long distance. But what I thought was really interesting and — as did the team, is that this started in mineralization before it got to the core and ended in mineralization. In other words, this could extend even further. So it’s quite possible that the so-called core of mineralization that we’re seeing could be a lot bigger than what we initially thought it to be. And the grades are looking good as well. And those are the drill results of the 3 holes that we’ve given you so far. And you can see we’ve given it to you at — sorry, I did say copper cutoff. Apologies. It’s gold equivalent cutoff. So gold equivalent cutoff of 0.5 grams a ton and 1.5 grams a ton. We’ve given you those drill results for those 3 holes that you can look through.

“It’s early days, and we have to finish all of the drilling. And then we’ll have to block model all of these results and see what it means in terms of the potential target we have in front of us. And that’s going to take us through to at least the end of this year and possibly into early next year. But there’s enough here for this to be a very, very exciting addition to the Gold Fields group. …”

If you read this transcript very closely, you would understand that the quality of the ore is very high. Consequently, the gold recovery rate is 1.5 grams a ton. To appreciate this number, PX gold recovery is reported to be o.5 grams a ton and they are already very profitable. I ask everybody then, how profitable can LC be when production comes into stream? Should we worry then that it is currently overbought because it had been overbought so many times since we noticed how cheap the stock was.